Morning Express 27 March 2015 Focus of the Day Indices ICBC (1398.HK) Neutral Turned cautious in terms of credit risk Shanshan LI, CFA Last Closing: HK$5.57 BUY SELL [email protected] Upside: +10.2% LT BUY Stock Target Price: HK$6.14→ Net profit attributable to equity holders of the parent rose 5.0% to RMB275.811bn in 2014, slightly lower than expectation, mainly due to higher-than-expected provisions. NIM was 2.66%, up 9 bps YoY, mainly because the increase of average yield of interest-generating assets outpaced the increase of cost of liabilities as a result of the increased proportion of loans. NIM climbed 6 bps in 4Q. The recent two rate cuts will affect 2015 NIM by about 12 bps. Fee and commission income grew 9.0% YoY, slightly lower than the pace in 1H14 by 0.5 ppt. Fee and commission income was mainly contributed by bank cards, personal wealth management, private banking, and corporate wealth management. The proportion of bill discounting increased slightly, and the bank reduced loans to the manufacturing, wholesale and retail and property sectors, as well as individual business loans and small/micro-enterprise loans, showing lower risk appetite during economic correction. We lower our 15/16E earnings forecasts by 1.3/1.5%. The stock is trading at 5.63x/0.89x 15E PE/PB. Maintain Neutral. Kerry Logistics (636.HK) Neutral FY14 result review – diversification paid off Geoffrey CHENG, CFA Last Closing: HK$11.44 [email protected] Upside: +16.3% 1d % -0.13 -0.41 0.59 -0.02 -1.52 0.19 -0.23 -0.24 -0.27 -1.37 -0.29 -0.18 Ytd % 3.78 -0.54 13.86 6.10 35.42 11.17 -0.81 -0.13 2.69 5.01 17.17 20.79 Close 59.19 1,204.70 17.10 6,125.00 119.16 1.49 1.09 3m % -0.44 0.73 6.39 -2.81 1.27 -4.26 -10.43 Ytd % 3.24 1.67 8.90 -2.78 0.52 -4.63 -10.03 bps change HIBOR 0.39 US 10 yield 1.99 Source: Bloomberg 3m 0.00 -0.26 6m 0.02 -0.54 Indicators Brent Gold Silver Copper JPY GBP EURO LT BUY HSI Technical SELL BUY Stock Target Price: HK$13.30→ Kerry Logistics Network reported a net profit of HK$1,658.8m. Taking off the revaluation gain, core net profit rose 10.1% YoY. We think the diversification strategy of expanding its regional and international network has borne fruit to mitigate the decline in contribution from China last year. We maintain our LT Buy rating and target price of HK$13.3, based upon our revised earnings forecasts. Download our reports from Bloomberg: BOCM〈enter〉 Close HSI 24,497 H Shares 11,920 SH A 3,859 SH B 308 SZ A 2,002 SZ B 1,144 DJIA 17,678 S&P 500 2,056 Nasdaq 4,863 FTSE 6,895 CAC 5,006 DAX 11,844 Source: Bloomberg HSI 50 d MA 200 d MA 14 d RSI Short Sell (HK$m) Source: Bloomberg 24,497 24,445 23,972 55 8,103 BOCOM Int'l Corporate Access 27 Mar 30 Mar 30 Mar 30 Mar 31 Mar 1 Apr 2 Apr 2 Apr 2 Apr Bank of Communications (3328.HK) Shengmu Organic Milk (1432.HK) Kingsoft (3888.HK) Tiangong (826.HK) GCL Poly (3800.HK) Phoenix Healthcare (1515.HK) Baoxin Auto (1293.HK) Landsea Green Properties (106.HK) Zhengtong Auto Service (1728.HK) Morning Express 27 March 2015 Hang Seng Index (1 year) 26,000 NetDragon (777.HK) Positive on game and online education businesses; Neutral SELL lift TP to HK$16.3 25,000 LT BUY 24,000 BUY 23,000 22,000 21,000 Yuan MA [email protected] Last Closing: HK$ 15.82 Upside: +3% Stock Target Price: HK$16.30↑ Source: Company data, Bloomberg 4Q14 total revenue was RMB283mn, up 22% QoQ, which mainly came from the growth of 1) Calibur of Spirit Online; 2) mobile technology and mobile marketing business; and 3) mobile games. We raise ND’s revenue estimates on 1) the strong performance of Calibur of Spirit, and 2) contribution of mobile games. Though gross margin would be negatively affected, the revenue growth from PC and mobile games are accretive to EBIT. We raise our valuation for the online education business as ND has started to build its nationwide distribution network for its education products. We fine-tune 2015E EPS by -2% and raise 2016E/2017E EPS by 4%/5%. Maintain LT Buy and lift TP from HK$12.6 to HK$16.3. HS China Enterprise Index (1 year) 13,000 12,000 11,000 10,000 9,000 8,000 Source: Company data, Bloomberg Sino-Biopharm (1177.HK) Neutral Pricing pressure remains the near-term overhang; Downgrade to “LT-BUY” Milo LIU Last Closing: HK$7.29 Shanghai A-shares (1 year) 4,000 BUY SELL 3,500 3,000 [email protected] Upside: +13.9% LT BUY Stock 2,500 Target Price: HK$8.30↓ 2,000 FY14 results beat our expectation, driven by strong 4Q14 hepatitis medicine and oncology sales. Source: Company data, Bloomberg The pricing pressure from provincial tendering remains the near-term overhang. Shenzhen A-shares (1 year) We expect revenue growth to slow down in FY15 and FY16. 2,000 1,800 We downgrade SBP from BUY to LT-BUY with TP revised to HK$8.3, corresponding to 26x 2015E EPS of HK$0.32. 1,600 1,400 1,200 1,000 GCL-Poly (3800.HK) Neutral Takeaways from 2014 results conference; maintain Buy Louis SUN Last Closing: HK$2.02 [email protected] Upside: +42% LT BUY Source: Company data, Bloomberg BUY SELL Stock Target Price: HK$2.87→ 1) Revenue grew 45.8% YoY to HK$37.22bn in 2014. Net profit attributable to equity holders of the company was HK$1.955bn vs. a loss of HK$664mn in 2013. Net profit was lower than our forecast of HK$2.197bn, mainly because of lower consolidated gross margin and higher-than-expected administrative and finance expenses. Download our reports from Bloomberg: BOCM〈enter〉 Morning Express 27 March 2015 2) Polysilicon business: The company’s polysilicon production in 2014 was 66,900 tons vs. 50,400 tons in 2013. ASP was US$21.7/kg vs. US$17.4/kg in 2013. Polysilicon cost dropped to US$15.5/kg as at the end of 2014, and will decrease to US$13/kg after technological upgrade of production line and commencement of operation of in-house power plant. Output is expected to reach 70,000 tons after technological upgrade of production line. Phase one of FBR production line has an annual capacity of 3,000 tons, and produced 500-600 tons of silicon particles in 2014. We expect FBR capacity to reach 25,000 tons/year by the end of 2015 and actual production to reach 5,000 tons, or even 8,000 tons if demand is strong. Upon full production ramp-up, cash cost of FBR silicon particles will be about US$8/kg. 3) Wafer business: Wafer output was 13.1GW in 2014 vs 8.8GW in 2013. ASP was US$0.22/W vs US$0.21/W. 2015 output is expected to be 14GW, including a small amount of outsourced production. 4) Polysilicon prices have slumped since March. The company is optimistic about the industry outlook for the following reasons: 1) January was a low season while May is expected to see a peak in power station construction; 2) The Ministry of Commerce’s ban will improve supply/demand in China; and 3) We expect a rush of installations ahead of the anticipated cut of on-grid tariff of PV in 2016. Coolpad Group (2369.HK) Neutral Gross margin fell 2.84 ppts YoY in 2H14 Zhiwu LI Last Closing: HK$1.39 [email protected] Downside: 2.8% LT BUY BUY SELL Stock Target Price: HK$1.35↓ 1) In 2014, revenue from principal businesses increased 26.9% YoY to RMB24.9bn, while net profit rose 47.1% YoY to RMB513mn, missing our forecast by 29.1%; 2) 2H14 revenue fell 0.26% YoY and 33.27% HoH to RMB9.966bn, while net profit dropped 25.42% YoY and 75.54% HoH to RMB101mn; 3) Blended gross margin in 2014 was 12.1%, down 0.78 ppt YoY and 1.46 ppts HoH. 2H14 gross margin was 9.93%, down 2.84 ppts YoY and 3.64 ppts HoH; 4) The notable HoH decline in revenue and net profit in 2H14 was largely due to destocking of 3G handsets and intensified competition from 4G handsets, while the subsidy cut by telecom operators posted great impact on that channel; 5) In view of the lower-than-expected gross margin and 2H14 revenue, we cut our 15/16E revenue and net profit estimates by 34.6%/39.3% and 55.9%/54.6%, respectively. We lower our TP by 25% to HK$1.35, corresponding to 15x 15E P/E. Maintain Neutral. Download our reports from Bloomberg: BOCM〈enter〉 Morning Express 27 March 2015 Maanshan Iron & Steel (323.HK) Accounting adjustment helped the company stay in profit, but the localization of high-speed locomotive wheels will take a long time Jovi LI Neutral Upside: +7.4% BUY SELL Stock [email protected] Last Closing: HK$2.07 LT BUY Target Price: HK$2.32→ The company’s FY14 results were in line with our expectation and market consensus. Due to an adjustment of depreciation treatment, the company managed to stay in profit and net profit rose by 40.3% to RMB220mn. In respect of locomotive wheels which has received high market attention, we believe that at the initial stage of the implementation of the ‘‘one belt, one road’’ strategy, China will not quicken the pace of localization of locomotive wheels and high-speed railway wheels for reasons of prudence. The locomotive wheel business can hardly contribute to FY15 results. Hence, we maintain ‘‘Neutral’’ and TP of HKD2.32, representing 0.60x FY15E PB. Transportation Sector Weekly transportation news wrap Geoffrey CHENG, CFA [email protected] Weekly In terms of sector, we highlight some notable updates for the transportation industry this week as follows: Global dry bulk market: BDI saw a slow rebound due to the freight rate performance of Capesize vessels. Transportation: China transportation freight volume and passenger throughput declined in February. Railway: Up to twelve international companies, including four Chinese companies, are bidding on India’s high-speed rail projects. Railway: The National Railway Administration and local governments of ten provinces deliberated railway network proposal for the Thirteenth-Five-Year Plan. Midland (1200.HK) Neutral FY14 results review; Benefiting from busy project launches Alfred LAU, CFA Last Closing: HK$3.50 [email protected] Upside: +11.4% LT BUY BUY SELL Stock Target Price: HK$3.90→ FY14 net profit turned around to HK$64m. Netting off the net loss in 1H14, the company posted a HK$100m net profit in 2H14, led by the exceptionally strong primary market. Management’s proactive cost-cutting also paid off, with the saving in non-commission salary and rental expenses contributing up to HK$80m increase in net profit, in our estimate. We forecast 17,000 units of primary market volume in 2015 (2014: 16,822 Download our reports from Bloomberg: BOCM〈enter〉 Morning Express 27 March 2015 units). Therefore, we expect earnings momentum to continue and maintain our forecast of HK$150m net profit, about half-way to restoring the company’s franchise value, before the secondary market fully recovers. Nevertheless, the shareholders’ fight since last year has not been resolved, with the second largest shareholder still holding 10.5% stake in the company, which might remain an overhang on the share price, in our view. We maintain Neutral on the counter, with a target price of HK$3.90, based on 9.0x normalised 16E ex-cash P/E, assuming transaction volume recovers and restores Midland’s franchise value, and in line with historical average. China Taiping (966.HK) Neutral Highest NBV growth in the industry; rapid growth to sustain in 2015 Jerry LI Last Closing: HK$25.95 BUY SELL [email protected] Upside: +45.7% LT BUY Stock Target Price: HK$37.81→ Event: CTIH announced 2014 results, which were fully in line with our expectation. Comments: 1) 2014 net profit grew 144.6% YoY to HK$4.01bn, mainly due to the substantial increase in investment gain of the life insurance segment. Net assets attributable to the parentco as at the end of 2014 was HK$35.9bn, representing an increase of 26.5% HoH (excluding the RMB6.4bn resulting from new share issuance), and slightly higher than our forecast of HK$34.4bn, mainly because of higher-than-expected combined ROI. 2) Agent channel grew rapidly with stable margins. First-year regular premium of the agent channel increased 60.5% YoY, while single premium declined 36.6% YoY. Policies with terms of over 10 years accounted for 83.9% of first-year premium, up from 69%. Due to the increased proportion of saving products, even though the proportion of regular premium to total first-year premium increased, NBV of the agent channel still edged down 1 ppt to 33%. As at 20 March, first-year regular premium of the agent channel increased 83% YoY. As the first quarter determines the NBV growth pace of the whole year, we expect NBV growth in 1H15 to exceed that of last year. 3) Banc assurance regular premium provided significant value contribution: First-year regular premium of the banc assurance channel increased 47.4% YoY. However, the proportion of policies with terms of over 10 years fell from 72.4% to 63.7%. Of note, NBM of banc assurance regular premium climbed from 29% to 33%. 4) Overall NBV increased by 37.4% YoY to HK$4.33bn, in line with our projection of HK$4.29bn. EV of life insurance attributable to equity holders of the parentco was RMB49.2bn, up 44% YoY, largely in line with our forecast of HK$49.7bn. 5) P&C, reinsurance and pension businesses saw robust performance and contributed an aggregate profit of HK$1.46bn. 6) In our view, there has been a misconception that CTIH’s product structure is poor. However, judging from the NBV growth and stable NBM of both the agent and banc Download our reports from Bloomberg: BOCM〈enter〉 Morning Express 27 March 2015 assurance channels, such worries are unwarranted. Trading at about 1.1x 2015F P/EV, the stock has valuation advantage. Moreover, its NBV growth is likely to beat expectation again this year. We maintain Buy on the counter. PetroChina (857.HK) Neutral Cost saving in E&P but uncertainty still ahead – Maintain Neutral Fei Wu Last Closing: HK$8.35 [email protected] Upside: -16% LT BUY BUY SELL Stock Target Price: HK$7.00 PetroChina’s 2014 operating and net profit came in at Rmb169.8bn and Rmb107.2bn, down 10% and 17.3% YoY, respectively. The EPS of Rmb0.59 was 1.6% lower than consensus estimate of Rmb0.60. However, the current low crude price environment in addition to the new upstream gas pricing going into effect on April 1 that would lower the incremental volume gas by Rmb0.44/cub.m would hit its earnings hard. In absence of a sustainable turnaround in oil prices and long-term cost advantage, PetroChina is still under the same risks as before. We maintain our Neutral rating with 16% downside. Download our reports from Bloomberg: BOCM〈enter〉 27 March 2015 Last Closing: HK$11.44 Upside: +16.3% Target Price: HK$13.30→ Logistics Sector Kerry Logistics (636.HK) UP MP FY14 result review – diversification paid off OP Financial Highlights Y/E 31 Dec 2013 2014 2015E 2016E 2017E Revenue (HK$m) 19,969 YoY growth 3.5 Net profit (HK$m) 1,834.5 YoY growth 71.6 EPS (HK$) 1.404 PER (x) 8.2 PBR (x) 1.41 Source: Company, BOCOM Int’l estimates 21,115 5.7 1,658.8 (9.6) 0.982 11.7 1.32 23,239 10.1 1,263.7 (23.8) 0.748 15.3 1.19 25,277 8.8 1,494.8 18.3 0.885 12.9 1.11 27,528 8.9 1,610.0 7.7 0.953 12.0 1.03 Neutral SELL Kerry Logistics Network reported a net profit of HK$1,658.8m. Taking off the revaluation gain, core net profit rose 10.1% YoY. We think the diversification strategy of expanding its regional and international network has borne fruit to mitigate the decline in contribution from China last year. We maintain our LT Buy rating and target price of HK$13.3, based upon our revised earnings forecasts. Stock data 52w High (HK$) 52w Low (HK$) Market cap (HK$m) Issued shares (m) Avg daily vol (m) 1-mth change (%) YTD change (%) 50d MA (HK$) 200d MA (HK$) 14-day RSI Source: Company data, Bloomberg KLN (LHS) 120 115 110 105 100 95 90 85 80 Rel to MSCI CN (RHS) 13.00 12.00 11.00 10.00 Jan-00 Jun-14 Sep-14 Dec-14 Source: Company data, Bloomberg Geoffrey Cheng, CFA [email protected] Tel: (852) 2977 9380 Download our reports from Bloomberg: BOCM〈enter〉 13.3 10.9 19,351 1,691.6 1.65 0.7 (7.0) 11.62 12.24 57.8 1 Year Performance chart (HK$) 14.00 Our LT Buy recommendation remains. KLN last year spent HK$1.7bn on capex (inclusive of acquisition) and management targets spending of HK$2.0bn-2.5bn this year. Key attention will be on expanding its IFF network in North America, for the benefit of its IL segment. Within Asia, KLN will focus on strengthening its express delivery service network. In view of the slowing economic growth in China, we believe a diversification strategy should work best for KLN in pursuit of higher return and profit contribution. We maintain our LT BUY recommendation and target price of HK$13.3. BUY Stock Core profit up 10.0% to HK$976m for FY14. Kerry Logistics Network (KLN) reported a headline earnings of HK$1,658.8m, down 9.6% YoY. Fair value gain from property revaluation amounted to HK$686.5m for the period (2013: HK$600.2m). On a like-to-like basis, core net profit was up 10.1% YoY to HK$976.0m, while turnover during the period rose 5.7% YoY. Among the three segments, turnover of its integrated logistics (IL) rose the most, up 11.5%. Similarly, segment profit of IL rose the most, up 13.3% YoY. Our FY2014 forecast of core profit was HK$927.8m, and so the result was slightly ahead of our forecast. Together with its interim DPS, the full year payout reached 24.2% of the full year core earnings. China was a laggard. Based on the geographical segment report, turnover from China, contributing 41.4% of the total, declined by 2.1% YoY. The segment profit contribution from China, about 23.3% of the total, was also down 1.2% YoY. This was notwithstanding the increased contribution from its IL in China, as the decline was largely a result of the decrease in contribution from the International Freight Forwarding (IFF) operation. Fortunately, the diversification effort in the past year paid off to buttress earnings growth with increased contribution from other regions such as North America, Europe and SE Asia. Notwithstanding the slowing growth in China, KLN is still stepping up its China presence with the acquisition of 1.1m sq.ft of land in Shanghai to build its new flagship facility. At the end of last year, KLN had received 19 licenses to operate express delivery within China. Management expects the express delivery service to be launched in at least 4 cities this year. LT BUY Mar-15 27 March 2015 Last Closing: HK$ 15.82 Upside: +3.03% Target Price: HK$16.30↑ NetDragon (777.HK) Internet Sector UP MP Positive on game and online education businesses; lift TP to HK$16.3 OP Financial Highlights Y/E 31 Dec 2013* 2014 2015E 2016E 2017 E Revenue (RMB m) YoY growth Non-GAAP Net profit (RMB m) YoY growth Adjusted diluted EPS (RMB) DPS (RMB) Dividend yield PE 1,231 11% 391 19% 1.07 8.13 51.4% 15 963 -22% 201 -49% 0.55 0.13 0.8% 29 1,285 33% 324 61% 0.79 0.03 0.2% 20 1,709 33% 380 17% 0.94 -0.21 -1.3% 17 2,238 31% 383 1% 0.97 -0.05 -0.3% 16 *Note: including the figures of 91 in 1H13 Source: Company, BOCOM Int’l estimates 4Q14 results lower than expectation. 4Q14 non-GAAP EPS was RMB1.3 cents, lower than our expectation of RMB14 cents. Total revenue was RMB283mn, up 22% QoQ but down 38% YoY. The revenue growth mainly came from the growth of 1) Calibur of Spirit Online; 2) mobile technology and mobile marketing business; and 3) mobile games. The increase in cost due to shift of game mix put pressure on gross margin, which decreased from 90% in 3Q14 to 87% in 4Q14. As NetDragon (ND) actively invests in the online education business, operating expenses increased substantially, with operating margin turning negative (-5%) from 11% in the previous quarter. Neutral LT BUY SELL BUY Stock Total revenue growth mainly came from the growth of 1) Calibur of Spirit Online; 2) mobile technology and mobile marketing business; and 3) mobile games. We raise ND’s revenue estimates on 1) the strong performance of Calibur of Spirit, and 2) contribution of mobile games. Though gross margin would be negatively affected, the revenue growth from PC and mobile games are accretive to EBIT. We raise our valuation for the online education business as ND has started to build its nationwide distribution network for its education products. Maintain LT Buy and lift TP from HK$12.6 to HK$16.3. Online game business exceeded expectation. Online game revenue was RMB283mn, which increased by 34%/48% QoQ/YoY, 22% higher than our estimate of RMB232mn. The increase was mainly due to newly launched expansion packs for games such as Conquer Online (征服), which recorded a 11-year high monthly revenue in December 2014. PCU and ACU increased from 382k and 225k in 3Q14 to 642k and 301k in 4Q14. Revenue from overseas markets contributed RMB53.8mn, up 46% compared with the previous quarter. Mobile game revenue reached RMB18.7mn, which doubled on a QoQ basis. Eudemons online pocket version (魔域口袋版) was launched in January 2015, and is expected to contribute RMB10mn to monthly revenue in March 2015. Stock data ND online education business expanded further. 1) In November 2014, ND was admitted by the Education Informatization Standard Committee under the Ministry of Education to engage in technology standard formation. 2) As for the distribution channel for educational products, ND is expanding its national school distribution network, through building agreements with local and regional distributors, which progressed smoothly. 3) In February 2015, the education subsidiary of ND raised US$477.5mn. In 2015, ND will continue active investment in online education and look for new merger and acquisition opportunities. We believe ND’s expertise in online games will help build an ecosystem of online education with an innovative learning environment and better user experience. 1 Year Performance chart Valuation. We raise ND’s revenue estimates on 1) the strong performance of Calibur of Spirit, and 2) contribution of mobile games, mainly Eudemons Online Pocket version. Though gross margin would be negatively affected, the revenue growth from PC and mobile games are accretive to EBIT. We also raise our valuation for the online education business as ND has started to build its nationwide distribution network for its education products, which would contribute to its revenue growth. We fine-tune 2015E EPS by -2% and raise 2016E/2017E EPS by 4%/5%. Maintain LT Buy and lift TP from HK$12.6 to HK$16.3. 52w High 16.50 52w Low 11.48 Market cap (HK$m) 7,805.00 Issued shares (m) 493.36 Avg daily vol (m) 7.62 1-mth change(%) 18.95 YTD change(%) 15.81 50d MA 13.47 200d MA 13.83 14-day RSI 80.31 Source: Company data, Bloomberg Source: Company data, Bloomberg Ma Yuan (Martina), Ph.D [email protected] Tel: (8610) 8800 9788 - 8039 Gu Xinyu (Connie), CPA [email protected] Tel: (8610) 8800 9788 - 8045 Download our reports from Bloomberg: BOCM〈enter〉 27 March 2015 Last Closing: HK$7.29 Upside: +13.9% Target Price: HK$8.30↓ Healthcare Sector Sino Biopharm (1177.HK) UP Pricing pressure remains the near-term overhang; Downgrade to “LT-BUY” MP OP Financial Highlights FY2013 FY2014 2015E 2016E Revenue (HKDmn) 7,497 9,901 YoY growth (%) 29.7% 32.1% Net income (HKDmn) 891 1,037 YoY growth (%) 92.5% 16.4% EPS (HKD) 0.18 0.21 P/E (x) 40.4 34.7 P/B (x) 6.2 5.0 Dividend yield (%) 0.7% 0.7% Source: Company, BOCOM Int’l estimates, as of Mar 26, 2015 Y/E 31 Dec FY2012 12,378 25.0% 1,513 46.0% 0.31 23.8 4.1 0.8% 14,455 16.8% 1,584 4.7% 0.32 22.7 3.5 0.9% 16,817 16.3% 1,963 23.9% 0.40 18.4 2.9 1.1% LT BUY Neutral BUY SELL Stock FY14 results beat our expectation, driven by strong 4Q14 hepatitis medicine and oncology sales. FY14 results beat our expectation. SBP reported strong FY14 revenue of HK$12,378mn, +25% vs. FY13 and +2% vs. our estimate of HK$12,165mn. Net income, on the other The pricing pressure from provincial tendering remains the near-term overhang. hand, was HK$1,513mn in FY14, +46% YoY and beat our estimate by +8% and street consensus by +10%. The strong results were mainly attributable to the robust 4Q14 figures, particularly in the hepatitis medicines and oncology sales. We expect revenue growth to slow down in FY15 and FY16. The pricing pressure from provincial tendering remains the near-term overhang. We downgrade SBP from BUY to LT-BUY with TP revised to HK$8.3, corresponding to 26x 2015E EPS of HK$0.32. Zhejiang announced its second-round tender results on 16 Mar, which surprised the market by setting the tender prices referenced to the lowest price across the board. As a result, some of the key products from SBP saw significant price erosion, such as c.45% price drop of Runzhong. We believe the price erosion from the tenders has been largely priced in, as we believe other provinces are unlikely to follow the magnitude of the price cut we have seen in Hunan and Zhejiang provinces. Nevertheless, pricing pressure remains the main theme for 2015, and we expect SBP to experience price cut in other provinces, but the magnitude might be relatively benign compared with Hunan and 1-year share price performance HSI 30% 1177 hk equity 20% 10% 0% -10% -20% Mar-14 Jun-14 Sep-14 Zhejiang, in our view. Source: BOCOM Int’l We expect revenue growth to slow down in FY15 and FY16, given: 1) pricing pressure Stock data from the tendering; 2) slowdown of TianQingGanMei resulting from reimbursement budget control and a shift in strategy by the management; and 3) market share contraction due to severe competition from the peers. We downgrade SBP from BUY to LT-BUY with TP revised to HK$8.3, which implies 26x 2015E PE based on our forecast 15E EPS of HK$0.32. The revision is largely due to the overall slowdown resulting from the pricing pressure, while we still favor SBP as it remains the industry leader in the high-end prescription drug market with strong R&D 52w High (HK$) 52w Low (HK$) Market cap (HK$m) Issued shares (m) Avg daily vol (m) 1-mth change (%) YTD change (%) 50d MA (HK$) 200d MA (HK$) 14-day RSI Mar-15 8.50 5.73 36,023.3 4,941.5 13.32 (2.41) 3.70 7.50 7.28 49.66 Source: Company data, Bloomberg Milo Liu capabilities. Download our reports from Bloomberg: BOCM Dec-14 [email protected] Tel: (852) 2977 9387 〈enter〉 26 March 2015 Transportation Weekly Transportation Transportation Sector Weekly transportation news wrap th Global dry bulk market saw slow rebound. As of 25 March 2015, demand of the global dry bulk market witnessed a slow rebound with BDI increasing by 4.7% WoW, but falling by 62.1% YoY, to 598, largely as a result of the freight performance of Capesize vessels. BPI slid by 0.3% WoW to 602, while BSI rose by 4.0% WoW, but plunged by 46.0% YoY, to 648. Different from last week, demand for Capesize vessels reversed its downward trend, surging by 27.5% WoW, but was still down 84.8% YoY. Similarly, both domestic Capesize freight index and Supramax freight index rose by 2.4% WoW and 7.8% WoW, respectively, in line with those of the global dry bulk market. Due to the weak recovery of the global economy and oversupply of vessels, we expect a slow rebound in demand for dry bulk commodities. 1-Year Sector Performance China transportation freight volume and passenger throughput witnessed declines in February. National Bureau of Statistics of China reported transportation freight volume and passenger throughput of February 2015. Transportation industry freight volume reached 2,322.0 million tonnes in February, representing an increase of 11.2% YoY, but a sharp decrease of 36.2% MoM, due to seasonality. For the first two months of 2015, transportation freight volume achieved stable growth. On the contrary, transportation industry passenger throughput saw decline trend on a yearly basis, falling by 0.8% YoY, but increasing by 13.5% MoM, to 1,968.7 million. In February, both railway and highway passenger throughput saw decline, by 6.1% and 0.7% YoY, respectively. However, the growth of passengers carried in the aviation industry accelerated to 12.4% YoY in February. Geoffrey Cheng, CFA Four Chinese enterprises to bid on India’s high-speed rail project. According to media reports from India, up to twelve international companies including four Chinese companies are bidding on India’s high-speed rail lines in three corridors, namely, Delhi-Mumbai, Delhi-Kolkata, and Mumbai-Chennai, with an estimated cost of Rs2000 billion. Bidders are invited to undertake feasiblity studies for the high speed rail with an estimated cost of Rs300 million. Recently, Chinese companies already started a study of the Delhi-Chennai corridor, which is one part of the Diamond Quadrilateral corridors. Based on the announcement from Minister of Railways, the purpose of growing the existing Indian railway network is to modernize and enhance railway capacity simultaneously. The successful bidders will be selected by July 2015 for each route, according to the press reports. National Railway Administration deliberated railway network proposal for the Thirteenth-Five-Year Plan. As required by the Ministry of Transport, NDRC, and the State Council, the National Railway Administration recently completed the preliminary proposal of railway network for the Thirteenth-Five-Year Plan. According to last week’s media reports, the National Railway Administration obtained advices regarding the proposal from local governments of more than ten provinces. Each local government introduced its project proposals, policies, and implementation plans for the Thirteenth-Five-Year railway network plan. The National Railway Administration will further strengthen research on the Thirteenth-Five-Year railway network plan in order to adapt and lead economic growth based on national strategy under the New Normal. Download our reports from Bloomberg: BOCM 〈enter〉 30% Sector performance HSI Index performance 25% 20% 15% 10% 5% 0% -5% Mar-14 Jun-14 Sep-14 Dec-14 Source: Bloomberg [email protected] Tel: (852)2977 9380 Fay Zhou [email protected] Tel: (852) 2977 9381 Mar-15 27 March 2015 Last Closing: HK$3.50 Upside: +11.4% Target Price: HK$3.90→ Hong Kong Property Sector Midland Holdings (1200.HK) UP MP OP FY14 results review; benefiting from busy project launches Financial Highlights Y/E 31 Dec Total operating revenue Growth (%) Core profit Core EPS (HK$) Core EPS growth (%) Core profit vs consensus (+/-%) Core P/E (X) DPS (HK$) Yield (%) Source: Company, BOCOM Int’l estimates 2012 3,911 15.1 240 0.349 88.7 2013 3,344 (14.5) (204) (0.284) (181.5) 2014 4,118 23.1 64 0.089 (131.4) 10.0 0.243 6.9 (12.3) - 39.3 - 2015E 4,482 7.9 156 0.217 143.7 +22% 16.1 0.152 4.3 2016E 4,902 9.4 260 0.362 66.7 +39% 9.7 0.253 7.2 Neutral Figure 1: FY14 results highlights Segment Highlights Primary: market Despite a surprise drop in 2H14 market share, FY14 share primary market commission income still rose 56% YoY, thanks to the surge in the market volume. Management will strengthen the sales team and continue to focus on new launches in 2015. Primary: FY14 commission rate: 2.88%, vs. 3.20% for FY13. commission Management sees the high commission rate in FY13 as one-off due to the new sales ordinance, and expects steady commission rate going forward. New branches The company closed 22 branches (-6% YoY) and 92 branches (-29% YoY) in HK and mainland, respectively, contributing HK$33m in rental expenses saving. Management intends to strengthen the sales team by enhancing staff productivity, rather than opening new branches. BUY SELL Stock Proactive management paid off. FY14 net profit turned around to HK$64m, from a loss of HK$204m in 2013, in line with its positive profit alert earlier. Netting off the net loss in 1H14, the company posted a HK$100m net profit in 2H14, led by the exceptionally strong primary market, offsetting the softened market share. On the other hand, we estimate a market share expansion in the secondary market, where commission income doubled YoY, versus a 60% YoY increase in industry transaction value in 2H14. More importantly, apart from the recovery in overall market transaction, the cost-cutting measures also paid off, with the saving in non-commission salary and rental expenses contributing up to HK$80m increase in net profit, in our estimate. Net cash position increased to HK$1.09bn (adjusted for receipt from customers, or HK$460m ex-459.HK), translating into HK$1.5 net cash per share. Nevertheless, the company declared no dividend for FY14 (FY13: nil). Busy project launches in 2015. Management expects the focus to remain on the “primary market” in 2015, especially with the potential slowdown in secondary market volume after the mortgage tightening, and intends to strengthen the sales team with more productive staff, rather than branch expansion. And the management does not see major threat from the entrants, given the well established brand name and network of the two market leaders. We forecast 17,000 units of primary market volume in 2015 (2014: 16,822 units). Therefore, we expect earnings momentum to continue and maintain our forecast of HK$150m net profit, about half-way to restoring the company’s franchise value, before the secondary market fully recovers. Nevertheless, the shareholders’ fight since last year has not been resolved, with the second largest shareholder still holding 10.5% stake in the company, which might remain an overhang on the share price, in our view. We maintain Neutral on the counter, with a target price of HK$3.90, based on 9.0x normalised 16E ex-cash P/E, assuming transaction volume recovers and restores Midland’s franchise value, and in line with historical average. LT BUY FY14 net profit turned around to HK$64m. Apart from the recovery in market volume, proactive cost cutting contributed up to HK$80m net profit, in our estimate. The shareholders’ fight remains an overhang in the near term. Maintain Neutral. Stock data 52w High 4.38 52w Low 3.17 Market cap (HK$m) 2,513.16 Issued shares (m) 718.05 Avg daily vol (m) 0.36 1-mth change(%) -8.38 YTD change(%) -11.17 50d MA 3.75 200d MA 3.90 14-day RSI 37.5 Source: Company data, Bloomberg BOCOM’s Comments We believe the company maintained its competitiveness in the New Territories, with well-performing projects including Mount One and City Point, and may have room for expansion in areas such as West Kowloon, TKO, and Tung Chung. We believe developers are setting more realistic ASP, and no longer give out rebates through commission. We also expect commission to return to normal at ~3%. We expect little room to cut the number of branches further, in order to protect market share, but the most rapid period of rental reversion is also over, in our view Source: Company, BOCOM Int’l Download our reports from Bloomberg: BOCM〈enter〉 1 Year Performance chart 20% HSI 1200.HK 10% 0% -1 0% -2 0% -3 0% Mar-14 Jul-14 Nov-1 4 Source: Company data, Bloomberg Alfred Lau, CFA, FRM [email protected] Tel: (852) 2977 9235 Mar-15 27 March 2015 Last Closing: HK$8.35 Upside: -16% Target Price: HK$7.00→ Energy Sector PetroChina (857.HK) – UP Cost saving in E&P but uncertainty still ahead – Maintain Neutral MP OP Financial Highlights YE Dec 2013 Revenue (Rmbm) 2,258,124 Revenue growth (% YoY) 2.9% Net profit (Rmbm) 129,599 EPS (Rmb) 0.71 EPS (% YoY) 12.4% Consensus EPS vs. Consensus EPS (%) PE (@HK$8.35) 9.3 Dividend yield (%) 4.8 ROACE 7.9% Source: Company, BOCOM Int’l estimates 2014 2,282,962 1.1% 107,172 0.59 -17.3% 0.60 -2.4% 11.2 4.0 6.2% 2015E 2,365,782 3.6% 35,027 0.19 -67.3% 0.34 -43.2% 34.4 1.3 2.1% 2016E 2,676,250 13.1% 24,228 0.13 -30.8% 0.55 -75.9% 49.7 0.9 1.5% 2017E 2,955,846 10.4% 28,381 0.16 17.1% 0.84 -81.5% 42.4 1.1 1.6% LT BUY Neutral BUY SELL Stock Earnings dropped 17.3% YoY and 1.6% lower than consensus. PetroChina’s 2014 operating and net profit came in at Rmb169.8bn and Rmb107.2bn, down 10% and 17.3% YoY, respectively. The EPS of Rmb0.59 was 1.6% lower than consensus estimate of Rmb0.60. Consistent with the past years, the company issued a 45% dividend payout. Earnings declined 17.3% and 1.6% lower than consensus. Cost saving helped E&P earnings. Much uncertainty ahead. Maintain Neutral. Cost reduction and market reform in old oilfields contributed to profit in hard times. PetroChina’s overall E&P earnings for 2014 dropped 1.5% to Rmb186.9bn. Q4 E&P earnings of Rmb40.9bn was down 6% QoQ compared with the 61% QoQ E&P earnings drop for Sinopec. While the company’s per unit lifting cost increased by 3%, its comprehensive cost reduction including administrative, transportation and operating costs by 5-6% and market reforms in the two old fields Liaohe and Jilin contributed to the increased profitability. Refining and chemicals sustained loss. Natural gas segment profit more than halved on import increase. Refining increased its loss from Rmb4.7bn in 2013 to Rmb7.2bn in 2014 on decrease in selling price of oil products and price of inventory while chemicals still recorded loss of Rmb16.4bn (vs. 19.7bn in 2013) on dropping demand in the chemicals market. The Marketing segment saw a greater 28.3% drop in operating profit on the domestic economy’s slowdown. In the natural gas segment, although revenue increased 22% YoY to Rmb232.75bn, operating profit halved from a year before to Rmb13.13bn. Central Asia, LNG and Myanmar gas brought in a volume of 29.3bcm, 7.3bcm, and 3.22bcm, each losing Rmb0.60, Rmb2.82 and Rmb1.07/cub.m, respectively. Stock data New oil price landscape leads to lower capex, possibilities of more overseas acquisitions, but more uncertainty ahead. Maintain Neutral. In the low price environment, PetroChina’s 2014 capex saw a second year of decline (down 8.5% vs. 9.6% 2012-13). 2015 should see a further cut of 8.8%. PetroChina also said that the first two months of 2015 E&P was profitable and believes that March should also be profitable. However, the current low crude price in addition to the new upstream gas pricing going into effect on April 1 that would lower the incremental volume gas by Rmb0.44/cub.m would hit its earnings hard. In absence of a sustainable turnaround in oil prices and long-term cost advantage, PetroChina is still under the same risks as before. We maintain our Neutral rating with 16% downside. 1 Year Performance chart 52w High (HKD) 52W Low (HKD) Market cap (USD m) Trading value (USD m) Avg daily vol (m) 1-mth change (%) YTD change (%) 50d MA ( HKD) 200d MA (HKD) 14-day RSI Source: Company data, Bloomberg 60% HSI 857 HK 40% 20% 0% -20% Mar-14 Jul-14 Nov-14 Source: Company data, Bloomberg Fei Wu [email protected] Tel: (852) 2977 9392 Tony Liu [email protected] Download our reports from Bloomberg: BOCM〈enter〉 11.70 7.93 334,142 102.9 75.6 (7.4) (2.9) 8.57 9.41 43.82 Mar-15 Morning Express 27 March 2015 Market Review Hong Kong stocks fell on Thursday. The Hang Seng Index dropped 31 points, or 0.13%, to close at 24,497. Lenovo (992) was the biggest blue-chip decliner, down 2.1%, while Mengniu (2319.HK) jumped 9.8% as the stronger blue-chip performer. Oil companies rallied. CNOOC (883.HK) gained 1.5%. COSL (2883.HK) added 4.1%. BOC (3988.HK) fell 0.9% but BOCHK (2388.HK) rose 1.5%. US and European stocks fell. The S&P 500 dropped 4.9 points, or 0.2%, to 2,056.15. The DJIA lost 40.31 points, or 0.2%, to 17,678.23. The Stoxx Europe 600 dropped 0.9% to 394.85. News Reaction Fan Gang: the slowdown of the domestic economic growth is normal and the tightening policies shall come to an end. Fan Gang, the director of China’s National Economic Research Institute, stated at a forum that the domestic economy will grow at a rate of 7% in 2015. He pinpointed that the Chinese Mainland has the potential to achieve higher economic growth but the central government will not boost the economy as taking reference of the past, a growth rate exceeding 9% will lead to higher inflation. Instead, the economic slowdown is more sustainable. SAFE: it remains uncertain as to whether QFII review will be subject to the registration system or the filing system. According to Guo Song, director of the capital account management department of SAFE, the reviews of QFII and RQFII have been consistently reformed and it remains uncertain if QFII review will change from being subject to a registration system, to a filing system. According to the existing requirements, no more than 50% of assets under QFII can have access to the inter-bank market while there are no limitations imposed on RQFII in entering the inter-bank bond market. It was reported that the Chinese Mainland will loosen requirements of provident fund loans in various regions to support the property market. It was reported that save as State Provident Fund center, Fujiang, Jinan and Ningbo had already rolled out policies to stabilize the property market, Shandong, Huizhou, Shanghai, Guangzhou and other provinces are also planning to introduce similar policies. PBoC repurchased RMB2.5 bn on 26 Mar at a bid rate maintained at 3.55%. As announced by PBoC, on 26 Mar, it has conducted reverse repurchase operations of RMB2.5 bn at the open market for seven days through interest bidding. The bidding rate remained to be 3.55% as the previous time. Mid-to-large scale domestic steel enterprises lost RMB3.15 bn in 2M15. According to Wang Liqun, the vice president of China Iron and Steel Association, mid-to-large scale steel enterprises lost RMB3.15 bn in 2M15 due to price pressure given the excess supply and slowing demand growth. China’s apparent consumption of crude steel in Jan and Feb declined by 7.5%. Download our reports from Bloomberg: BOCM〈enter〉 Morning Express 27 March 2015 Economic releases for this week - USA Date Time 23-Mar 24-Mar 24-Mar 24-Mar 25-Mar 25-Mar 26-Mar Source: Bloomberg Event Existing Home sales (m) CPI (MoM) CPI ex food & energy (MoM) New Home sales (k) MBA mortgage applications Durable goods order Initial jobless claims (k) Economic releases for this week - China Survey 4.94 0.2% 0.1% 475.0 0.5% 295.0 Prior 4.82 -0.7% 0.2% 481.0 -3.9% 2.8% 291.0 Date Time 24-Mar 27-Mar Event HSBC Manufacturing PMI Industrial production(YoY) Survey 50.5 - Source: Bloomberg BOCOM Research Latest Reports Data 26 Mar 2015 26 Mar 2015 26 Mar 2015 26 Mar 2015 26 Mar 2015 25 Mar 2015 25 Mar 2015 25 Mar 2015 25 Mar 2015 25 Mar 2015 25 Mar 2015 25 Mar 2015 25 Mar 2015 25 Mar 2015 24 Mar 2015 24 Mar 2015 24 Mar 2015 24 Mar 2015 24 Mar 2015 24 Mar 2015 Report Austar Lifesciences Limited (6118.HK) – GMP impact fading out; set for FY15 recovery Container Shipping Sector – Weekly container shipping commentary AAC Technologies (2018.HK) – A strong fourth quarter, but missed Guangshen Railway (525 HK) – FY14 result review – disappointing result again Agile Property (3383.HK) – FY14 largely inline; restructuring has begun but Rome was not built in a day Sinopec Shanghai Petrochemical (338.HK) - Ready to receive the benefit of lower crude oil price SPT Energy (1251.HK) –Margin decline in the low oil price environment Link REIT (823.HK) – A milestone to cross-border investment KWG Property (1813.HK) – FY14 results inline; solid fundamentals with strong sales execution Sinotrans Limited (598.HK) – FY14 result – The DHL JV kept providing the lift Intime (1833.HK) – FY14 in line; remain positive on earnings outlook; reiterate Buy Daphne (210.HK) – Hit hard by online competition; TPG stays/exits should soon be unveiled Hengan (1044 HK) – 2015 Swing factors: tissue and diaper sell-through Henderson Land (12.HK) – FY14 results review; faster sales at lower margin Hilong Holding Limited (1623.HK) – 2014 FY results – Overseas business saves the day Baiyunshan (874.HK) – FY14 results missed; Maintain “Neutral” Sinopharm (1099.HK) – FY14 results beat with promising 2015E guidance; Reiterate “BUY” Sinopec (386.HK) – Lower crude price bit into earnings; Q1 profit warning and uncertain outlook; Downgrade to Neutral Golden Eagle (3308.HK) – FY14 in line; remain cautious on earnings outlook as margin pressure lingers Tingyi (322 HK) – Stick with cost cutting and national brand strategy Source: Company data, BOCOM International Download our reports from Bloomberg: BOCM〈enter〉 Analyst Milo Liu Geoffrey Cheng, CFA Miles XIE Geoffrey Cheng, CFA Philip Tse, CFA, FRM, Alfred Lau, CFA, FRM Fei Wu, Tony Liu Fei Wu, Tony Liu Alfred Lau, CFA, FRM Philip Tse, CFA, FRM, Alfred Lau, CFA, FRM Geoffrey Cheng, CFA Anita Chu Phoebe Wong Summer Wang Alfred Lau, CFA, FRM Fei Wu Milo Liu Milo Liu Fei Wu, Tony Liu Anita Chu Summer Wang Prior 50.7 -8.0% Morning Express 27 March 2015 Hang Seng Index Constituents Company name CKH HOLDINGS CLP HOLDINGS HONG KG CHINA GS WHARF HLDG HSBC HLDGS PLC POWER ASSETS HANG SENG BANK HENDERSON LAND D HUTCHISON SHK PPT NEW WORLD DEV SWIRE PACIFIC-A BANK EAST ASIA GALAXY ENTERTAIN MTR CORP SINO LAND HANG LUNG PPT KUNLUN ENERGY CHINA MER HOLD WANT WANT CHINA CITIC CHINA RES ENTERP CATHAY PAC AIR TINGYI SINOPEC CORP-H HKEX LI & FUNG LTD CHINA OVERSEAS TENCENT CHINA UNICOM LINK REIT CHINA RES POWER PETROCHINA-H CNOOC CCB-H CHINA MOBILE LENOVO GROUP HENGAN INTL CHINA SHENHUA-H CHINA RES LAND COSCO PAC LTD AIA ICBC-H BELLE INTL SANDS CHINA LTD PING AN-H BOC HONG KONG HO CHINA LIFE-H BANKCOMM-H BANK OF CHINA-H Hang Seng Index BBG code 1 HK 2 HK 3 HK 4 HK 5 HK 6 HK 11 HK 12 HK 13 HK 16 HK 17 HK 19 HK 23 HK 27 HK 66 HK 83 HK 101 HK 135 HK 144 HK 151 HK 267 HK 291 HK 293 HK 322 HK 386 HK 388 HK 494 HK 688 HK 700 HK 762 HK 823 HK 836 HK 857 HK 883 HK 939 HK 941 HK 992 HK 1044 HK 1088 HK 1109 HK 1199 HK 1299 HK 1398 HK 1880 HK 1928 HK 2318 HK 2388 HK 2628 HK 3328 HK 3988 HK Share price (HK$) 156.20 13.10 140.80 101.30 91.90 18.94 67.35 53.80 119.40 36.40 12.32 29.00 15.00 17.60 20.85 8.64 66.95 8.84 30.35 35.90 178.30 7.34 24.10 11.54 8.35 10.56 11.28 10.08 48.90 5.57 8.64 32.50 90.80 27.80 32.30 6.44 4.36 17.78 53.30 76.95 140.70 107.00 104.10 21.20 8.03 17.60 16.66 6.05 19.24 6.38 Mkt cap (HK$m) 361,785 326,234 1,319,749 2,074,067 112,523 468,138 1,295,484 161,418 342,911 212,324 74,709 74,360 36,320 69,236 136,167 72,872 169,146 78,618 71,267 152,645 208,310 61,365 196,993 276,349 2,598,937 471,477 125,306 29,640 589,008 2,071,503 72,872 262,218 866,278 293,923 1,187,540 534,062 1,498,199 186,905 161,554 164,231 268,996 456,181 153,097 95,089 105,935 69,236 93,364 922,314 92,308 1,605,456 5d chg (%) 2.5 -1.5 -2.9 1.2 6.0 -6.0 1.1 5.9 1.8 1.4 4.8 -0.5 -0.4 3.0 3.2 -1.9 1.2 0.3 2.4 1.1 1.1 -8.6 8.3 -3.4 -0.9 0.0 2.4 -4.2 1.5 -2.3 -1.9 4.2 2.6 3.3 -1.4 -4.6 -2.0 0.6 0.6 2.3 0.8 2.0 1.2 -0.9 1.3 3.0 -11.0 -2.4 -2.3 -1.4 Ytd chg (%) 19.9 -0.9 25.2 11.9 13.4 -17.5 -9.0 -0.9 0.9 14.5 -1.6 11.1 -7.6 4.1 2.0 -0.9 -0.4 -0.9 -2.9 -17.8 3.8 1.1 4.6 11.0 -2.9 1.1 10.6 -8.5 13.3 -1.6 -0.9 -14.8 14.8 7.1 6.1 -11.0 -0.2 0.1 -4.8 2.3 8.9 19.9 3.1 -2.5 -21.4 4.1 -6.0 -3.2 -3.8 0.2 24,528 15,188,704 0.1 3.8 Source: Bloomberg Download our reports from Bloomberg: BOCM〈enter〉 –––– 52-week –––– Hi Lo (HK$) (HK$) 158.50 117.70 16.88 12.60 148.80 93.00 108.50 67.05 94.35 74.05 24.40 18.62 84.40 64.35 57.20 39.09 129.40 92.35 36.85 28.00 14.16 10.82 29.95 22.75 24.55 14.04 18.30 13.56 23.60 13.62 10.00 7.22 69.85 57.40 10.48 7.34 34.45 29.00 72.96 32.80 189.00 116.10 10.70 7.06 26.70 17.66 14.22 9.76 11.70 7.93 15.88 9.72 12.70 8.17 11.92 9.71 49.65 35.90 5.90 4.56 10.00 7.22 65.20 29.50 94.45 55.60 28.15 21.50 34.00 19.72 7.36 4.75 4.57 3.25 18.90 14.86 63.90 48.40 82.80 64.60 148.40 121.00 108.50 85.90 108.00 88.15 26.45 20.90 13.10 7.69 18.30 13.56 23.25 16.02 8.23 5.90 24.90 18.02 6.62 5.21 25,363.0 21,680.3 –––––––––– PE ––––––––––– 2014A 2015E 2016E (X) (X) (X) 6.7 10.9 10.5 6.3 6.0 5.4 43.8 33.8 26.1 15.1 14.7 14.1 28.8 24.2 20.9 7.8 9.0 8.3 12.6 10.4 9.7 9.6 16.8 16.4 10.8 15.6 14.2 13.5 20.5 20.2 9.7 14.4 13.9 16.8 17.0 15.5 N/A 72.5 32.7 22.0 10.5 9.2 8.3 9.4 8.1 N/A 12.9 12.5 15.1 15.7 14.8 6.6 10.7 9.9 10.6 11.8 11.0 14.8 16.9 15.1 40.2 30.6 26.9 14.3 14.3 12.6 7.1 7.3 6.3 18.3 15.9 13.6 11.5 21.2 12.2 6.8 7.2 16.6 17.3 17.7 14.4 13.0 10.8 10.2 21.7 20.3 18.2 5.7 5.4 5.1 N/A 12.9 12.5 13.3 15.6 14.4 14.7 13.9 12.4 12.0 10.9 9.9 22.7 17.4 15.0 5.9 5.9 5.7 5.8 5.6 5.3 26.1 24.2 22.6 4.5 13.3 12.0 2.7 18.4 18.7 17.8 14.1 13.8 6.8 13.7 11.9 14.1 14.5 13.1 8.1 14.7 15.3 22.0 18.8 17.3 22.0 10.5 9.2 30.0 23.4 20.7 12.2 16.5 11.2 9.9 7.5 7.3 5.6 5.5 5.3 10.3 11.7 10.5 Yield P/B (%) 2.3 1.6 0.3 2.8 2.2 4.9 5.6 2.0 2.8 2.2 4.1 2.7 1.8 2.0 2.4 N/A 3.9 4.8 3.7 0.0 2.2 4.6 2.3 2.2 3.8 5.4 2.1 3.1 1.0 N/A N/A 3.1 1.0 4.0 1.5 N/A 5.4 2.0 3.4 3.5 4.0 2.3 1.1 3.6 2.3 2.0 1.7 9.1 4.1 5.9 (X) 0.9 0.8 13.2 1.9 6.4 1.0 0.9 0.7 0.8 1.3 0.7 1.1 0.7 1.3 1.3 2.3 1.9 0.5 1.0 4.0 9.8 3.0 1.5 1.0 1.0 1.0 3.8 0.8 2.5 1.0 2.3 5.3 2.2 1.7 2.6 0.8 0.9 3.6 0.5 1.3 1.9 1.1 0.7 0.7 6.7 1.3 4.0 1.0 1.3 1.1 3.4 1.4 Morning Express 27 March 2015 China Ent Index Constituents Company name TSINGTAO BREW-H JIANGXI COPPER-H SINOPEC CORP-H CHINA RAIL GR-H DONGFENG MOTOR-H CHINA TELECOM-H AIR CHINA LTD-H PETROCHINA-H HUANENG POWER-H ANHUI CONCH-H CHINA LONGYUAN-H CCB-H CITIC BANK-H SHANDONG WEIG-H CHINA SHENHUA-H SINOPHARM-H BYD CO LTD-H ABC-H NEW CHINA LIFE-H PICC GROUP-H CHINA CINDA-H ICBC-H CHINA COM CONS-H CHINA COAL ENE-H MINSHENG BANK-H CHINA VANKE-H GUANGZHOU AUTO-H PING AN-H PICC P&C-H GREAT WALL MOT-H WEICHAI POWER-H GREAT WALL MOT-H CHINA PACIFIC-H CHINA LIFE-H CHINA OILFIELD-H CHINA NATL BDG-H BANKCOMM-H CM BANK-H BANK OF CHINA-H CITIC SEC-H HAITONG SECURI-H Hang Seng China Ent Indx BBG code 168 HK 358 HK 386 HK 390 HK 489 HK 728 HK 753 HK 857 HK 902 HK 914 HK 916 HK 939 HK 998 HK 1066 HK 1088 HK 1099 HK 1211 HK 1288 HK 1336 HK 1339 HK 1359 HK 1398 HK 1800 HK 1898 HK 1988 HK 2202 HK 2238 HK 2318 HK 2328 HK 2333 HK 2338 HK 2333 HK 2601 HK 2628 HK 2883 HK 3323 HK 3328 HK 3968 HK 3988 HK 6030 HK 6837 HK Share price (HK$) Mkt cap (HK$m) 5d chg (%) Ytd chg (%) 51.00 13.38 6.05 6.73 12.16 4.83 6.85 8.35 8.78 27.80 8.21 6.38 5.68 6.44 18.94 29.75 37.20 3.75 40.55 3.91 3.66 5.57 9.80 4.04 9.05 17.12 7.10 90.80 15.66 50.65 28.55 50.65 35.60 32.30 12.32 7.45 6.44 18.28 4.36 26.40 17.64 70,778 72,405 922,314 295,154 104,772 390,903 128,882 2,598,937 141,604 145,239 65,979 1,605,456 372,393 28,828 468,138 82,321 139,658 1,454,661 179,551 165,878 132,699 2,071,503 260,644 95,281 384,083 179,270 67,502 866,278 232,214 183,516 71,287 183,516 352,125 1,187,540 106,767 40,223 534,062 475,733 1,498,199 424,241 254,854 1.4 0.0 -2.4 1.7 -0.2 -4.0 -2.6 -0.9 -5.4 -0.4 -0.2 -1.4 -5.3 6.8 -6.0 0.7 -4.6 -2.3 -6.5 -1.3 -1.1 -2.3 -0.9 -1.9 -4.9 -1.7 -2.2 2.6 -3.8 2.6 -1.9 2.6 -4.6 -1.4 1.7 -1.5 -4.6 -2.5 -2.0 1.0 2.4 -3.0 0.6 -3.2 5.5 10.7 6.4 9.3 -2.9 -16.2 -4.3 1.7 0.2 -8.7 2.9 -17.5 8.4 22.6 -4.3 3.6 7.7 -3.2 -1.6 5.0 -16.9 -11.3 -1.0 0.6 14.8 3.8 14.9 -12.7 14.9 -9.6 6.1 -8.5 -1.2 -11.0 -6.1 -0.2 -9.6 -9.6 64.0 15.2 8.2 7.0 15.2 5.2 7.5 11.7 11.6 35.7 9.1 6.6 6.3 9.9 24.4 34.5 57.8 4.1 46.5 4.1 4.5 5.9 10.2 5.4 10.7 20.4 9.9 94.5 17.1 54.2 34.9 54.2 42.0 34.0 23.4 8.4 7.4 20.0 4.6 34.0 23.2 11,969 4,888,837 -1.7 -0.5 12,400.4 Source: Bloomberg Download our reports from Bloomberg: BOCM〈enter〉 –––– 52-week –––– Hi Lo (HK$) (HK$) ––––––––––– PE ––––––––––– 2014A 2015E 2016E Yield P/B (X) (X) (X) (%) (X) 47.5 11.9 5.9 3.4 10.0 3.4 4.2 7.9 7.2 24.0 7.1 5.2 4.2 5.7 18.6 19.7 18.7 3.2 22.1 2.9 3.3 4.6 5.0 3.8 6.2 12.8 6.6 55.6 9.7 26.1 26.0 26.1 23.6 19.7 11.1 6.7 4.8 13.1 3.3 15.0 9.8 27.8 12.8 12.2 11.5 6.5 17.6 25.7 11.5 9.3 10.7 20.7 5.6 5.2 21.3 7.8 21.5 146.4 5.5 15.8 18.4 9.8 5.7 9.9 49.0 5.5 10.0 11.4 14.7 16.7 15.4 8.7 15.4 24.2 22.7 5.7 5.4 5.9 6.6 5.8 20.5 32.1 27.3 14.4 16.5 10.9 6.4 15.2 19.7 21.2 7.7 10.2 14.9 5.5 5.0 18.8 9.0 18.6 121.7 5.1 12.3 12.0 8.9 5.4 9.3 89.9 5.2 8.7 8.8 13.9 12.5 10.9 9.5 10.9 20.4 17.4 6.2 5.8 5.9 6.0 5.6 19.3 18.5 24.5 13.1 11.2 9.8 5.8 13.9 10.1 12.2 7.7 9.4 12.8 5.3 4.7 16.5 8.3 15.3 37.4 4.9 10.6 10.6 7.0 5.1 8.4 39.0 5.0 7.4 7.3 12.4 11.9 9.0 10.0 9.0 17.3 15.0 8.8 5.7 5.7 5.4 5.3 16.2 15.1 N/A 1.9 9.1 1.2 2.1 2.0 0.8 3.8 5.4 2.9 0.9 5.9 N/A 1.3 4.9 1.3 0.2 N/A 0.6 0.3 1.2 N/A 2.4 0.7 2.2 3.0 2.8 1.0 1.7 N/A 1.1 N/A 1.4 1.5 4.4 2.8 N/A 4.6 5.4 N/A 0.8 3.5 0.8 1.0 1.3 1.1 1.1 1.3 1.0 1.4 1.8 1.6 1.1 0.8 2.3 1.0 2.4 2.9 0.9 2.1 1.7 1.4 1.0 1.3 0.5 1.1 2.0 1.0 2.2 2.8 3.7 1.4 3.7 2.4 2.6 1.1 0.8 0.8 1.2 0.9 2.4 2.1 9,620.4 8.5 8.2 7.4 3.8 1.3 Morning Express 27 March 2015 BOCOM International 11/F, Man Yee Building, 68 Des Voeux Road, Central, Hong Kong Main: + 852 3710 3328 Fax: + 852 3798 0133 Rating System Company Rating www.bocomgroup.com Sector Rating Buy: Expect more than 20% upside in 12 months LT Buy: Expect more than 20% upside but longer than 12 months Neutral: Expect low volatility Sell: Expect more than 20% downside in 12 months Outperform (“OP”): Expect more than 10% upside in 12 months Market perform (“MP”): Expect low volatility Underperform (“UP”): Expect more than 10% downside in 12 months Research Team Head of Research @bocomgroup.com Raymond CHENG, CFA, CPA, CA (852) 2977 9393 @bocomgroup.com raymond.cheng Strategy Economics Hao HONG, CFA Miaoxian LI (852) 2977 9384 hao.hong (852) 2977 9212 yangqingli Fei WU (852) 2977 9392 fei.wu Shanshan LI, CFA (86) 10 8800 9788 - 8058 lishanshan Tony LIU (852) 2977 9390 xutong.liu Li WAN, CFA (86) 10 8800 9788 - 8051 Wanli Alfred LAU, CFA, FRM (852) 2977 9235 alfred.lau Philip TSE, CFA, FRM (852) 2977 9220 philip.tse Luella GUO (852) 2977 9211 luella.guo (86) 21 6065 3606 louis.sun (852) 2977 9209 lizhiwu (852) 2977 9216 miles.xie Geoffrey CHENG, CFA (852) 2977 9380 geoffrey.cheng Fay ZHOU (852) 2977 9381 fay.zhou (86) 21 6065 3675 wei.yao Banks/Network Financials Qingli YANG miaoxian.li Oil & Gas/ Gas Utilities Consumer Discretionary Property Phoebe WONG (852) 2977 9391 phoebe.wong AnitaCHU (852) 2977 9205 anita.chu Consumer Staples Renewable Energy Summer WANG (852) 2977 9221 summer.wang ShawnWU (852) 2977 9386 shawn.wu (852) 2977 9387 milo.liu Healthcare Louis SUN Telecom & Small/ Mid-Caps Milo LIU Insurance & Brokerage Zhiwu LI Technology Jerry LI (852) 2977 9389 liwenbing Jennifer ZHANG (852) 2977 9250 yufan.zhang Yuan MA,PhD (86) 10 8800 9788 - 8039 yuan.ma Connie GU, CPA (86) 10 8800 9788 - 8045 conniegu (852) 2977 9243 jovi.li Internet Miles XIE Transportation & Industrial Metals & Mining Jovi LI (86) 10 8800 9788 - 8043 Automobile Download our reports from Bloomberg: BOCM〈enter〉 Wei YAO Morning Express 27 March 2015 Analyst Certification The authors of this report, hereby declare that: (i) all of the views expressed in this report accurately reflect their personal views about any and all of the subject securities or issuers; and (ii) no part of any of their compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed in this report; (iii) no insider information/ non-public price-sensitive information in relation to the subject securities or issuers which may influence the recommendations were being received by the authors. The authors of this report further confirm that (i) neither they nor their respective associates (as defined in the Code of Conduct issued by the Hong Kong Securities and Futures Commission) have dealt in or traded in the stock(s) covered in this research report within 30 calendar days prior to the date of issue of the report; (ii)) neither they nor their respective associates serve as an officer of any of the Hong Kong listed companies covered in this report; and (iii) neither they nor their respective associates have any financial interests in the stock(s) covered in this report. 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